Piecing it Together Pt. 2 — Assets, Trustlines, Anchors & the T.N.C.S

Exploring the creation, movement, and interaction of assets within the DigitalBits ecosystem.

Types of Assets:

3 types of assets are able to exist on the DigitalBits blockchain.

XDB

XDB, DigitalBits’ native token, serves three main functions on the network.

1. Protective Security Feature — every account on the DigitalBits blockchain is required to stake 20 XDB. This ensures authenticity and enables the account’s send function. Each transaction is also subject to a minor transaction fee of 100 nibs (0.00001 XDB). Together, these features create a financial disincentive to malicious users that may look to flood the network.
2. Enables transactions among non-native tokens — XDB may operate as a bridge currency if required to facilitate trades between asset pairings that do not have a large direct market
3. XDB can be leveraged for fast and low-cost payments and remittances

Unanchored Assets

Unanchored assets are created on the DigitalBits network, and are not linked to assets outside of the DigitalBits ecosystem. If an application was to be built on top of DigitalBits, and release a utility token via ICO or other distribution method, this token would be an example of an unanchored asset. This is very similar to ERC-20 tokens that have been launched off the Ethereum network. These assets may also be referred to as non-redeemable or non-collateralized.

Anchored Assets

Anchored assets are those that did not originate on the DigitalBits blockchain. The possibilities for anchored assets are vast, and allows any asset imageable to interact with the DigitalBits blockchain. This can range from other cryptocurrencies like Bitcoin, stocks and bonds, real-estate, or even minions (our UI/UX designer loves minions, as such they will be used as a running use-case. Going forward they represent any potential tokenized asset)

DigitalBits provides limitless potential to tokenize assets:

Assets on the DigitalBits blockchain become usable within the DigitalBits decentralized exchange, allowing the assets value to be leveraged towards any offerings available within the DigitalBits ecosystem.

Anchored assets interacting with DigitalBits Network

Anchors, Asset Issuance & Redemption

Anchors act as a link between the DigitalBits network and the outside world, allowing external assets to interact with the blockchain. Any account on the DigitalBits blockchain is able to issue an asset. The token that exists on the blockchain is a proxy of the real world asset, a digital representation of ownership. Anchors play a similar role to banks, and allow users to redeem their proxy tokens for the respective real-world asset. In the diagram below, Jon redeems his Minion credit with asset issuer Gru Corp for the Minion asset.

Minion credits are redeemed in exchange for the Minion asset

Trustlines

In the analogue world, people generally transact with individuals and entities that they trust. Similarly, DigitalBits requires an asset issuer to be trusted before its assets can be held by an account. This is done by issuing a trustline, an explicit iteration of trust between the account and issuer.

Jon and Gru Corp extend trustlines to each other

Jon wishes to purchase minions from Gru Corp using Bitcoin on the DigitalBits network. Before either entity can accept assets, they must issue a trustline to the other.

Now that the trustlines have been established, Jon and Gru Corp can complete their transaction and exchange assets.

The DigitalBits native token, XDB, is unique in that it is the only asset that can be sent between accounts without establishing trustline first.

XDB moves freely without requiring a trustline to be issued.

Token Name Certification Service (TNCS)

Currently under development, the Token Name Certification Service provides a framework to ensure that an asset issued on the DigitalBits blockchain actually represents its real-world equivalent.

Let’s imagine a world in the not so distant future. If something exists, it is tokenized. You buy Apple stock within the DigitalBits decentralized exchange, using Air Miles points you have been accumulating for years and can now can use freely. $20 000 worth of points, for $20 000 worth of Apple stock. But wait… it’s not real Apple Stock, instead… you bought stock in a failing farm operation… their only product is potatoes and they are fresh out of potatoes.

In order to realize a true token economy, there must be assurance that tokenized assets represent and can be redeemed for a legitimate real-world counterpart. The Token Name Certification Service helps to prevent malicious entities from issuing tokens that represent brands or companies that they are not associated with. Service providers within the DigitalBits network may provide services similar to SSL certificate authorities that maintain a mapping between smart contract address and the identities of token issuers.

DigitalBits engages a challenge-response-based validation and authentication process on the blockchain. An asset issuer that wishes for the TNCS provider to approve authenticity of their digital assets will request a challenge that is then created by the TNCS provider. The issuer will then fulfil the challenge and send the response back. The challenge and response are transparently recorded on the blockchain.

Jon interacts with the verified Gru Corp account

Using our running use case, Jon wishes to purchase Minions on the DigitalBits blockchain. There are two similar entities, one he believes is the real Gru Corp, the other is a malicious entity masquerading as Gru Corp.

Gru Corp requests a challenge from the TNCS provider. The challenge is fulfilled and the response is sent back, certifying Gru Corp as an asset issuer for minions. Jon extends a trustline to the verified Gru Corp account, but does not issue one to the unverified account as this may be fraudulent and/or malicious. As asset tokenization becomes more prevalent, the TNCS will play an increasingly important role in the verification of legitimate asset issuers on the blockchain.